Insurance

What is Insurance?

Insurance is a means of protection from financial loss. The main aim of setting up any business is to make a profit. Insurance is the protection taken against unforeseen destruction by fire, theft, accident, etc.

Principles of Insurance:

1. Indemnity:

Indemnity means a guarantee or assurance by the insurance company to put the insuredThe insured is the party (ies) (person or firm) having property covered against risk. They are covered by an insurance policy. in the same position in which he was, immediately before the happening of the uncertain event. It is to protect someone, or some entity, from loss, damages, or injury that may occur in the future.

Example: An insurance company has agreed to indemnify Tunde against damages to his car, if an accident or damage occurs to the car, in the future. If Tunde then has an accident the Insurance company will pay for the losses and will either fix or replace the car, depending on the extent of the damage.

2. Utmost Good Faith:

Utmost good faithThe principle of utmost good faith, also known as "uberrimae fidei" or "uberrima fides", states that the insurer and insured both must be transparent and disclose all the essential information required before signing up for an insurance policy. is a very important principle of insurance that cannot be taken for granted. This principle means that both the insurerAn insurer is usually a company but can be a person, that provides financial support in the case of specific bad events listed in an insurance policy. e.g NICON insurance company, UNIC insurance company, etc. and insured must be faithful to each other while contracting the insurance.

3. Proximate Cause:

Proximate cause is the primary cause of an injury. This principle states that there must be a close connection between the actual loss suffered and the risk for which the insurance was taken out. For example, If Bola insures her laptop against a technical fault but her laptop screen cracks, the insurance company might not pay money because the risk cover that was agreed on was for technical faults, not a cracked screen.

4. Insurable Interest:

This term concerns the owner of the item insured. He alone should have an interest in the insured against, as he alone will suffer any disadvantage in event of a loss. eg a person cannot insure his neighbour’s boat.

5. Subrogation:

This refers to the right of the insurance company to take the place of the insured in case a loss has been indemnified. e.g If Shola’s Phone was damaged and she has been compensated for it, the insurance company can take the damaged phone, repair it and sell it. The phone doesn’t belong to Shola anymore but to the insurer company.

6. Contribution:

Contribution is the principal holding, that two or more insurers, each liable for a covered loss, should participate in the payment of that loss, though not necessarily equally liable they will share the cost of an indemnity payment.

7. Loss Minimisation:

This principle says that the insured must always try their level best to minimize the loss of their insured property, in case of sudden events like fire etc. The owner should not be negligent or irresponsible because he or she is insured on the subject matter.

For example, in the case of a sudden fire in your warehouse, one should take reasonable steps to put out the fire. Because you are insured and know you will get compensated, by the insurance company, does not mean you should stand back and allow the warehouse to burn down.